Americas News
January Oil Markets Will Herald a Tumultuous 2018 of Weakened Demand and Oversupply: Kilduff
Although West Texas Intermediate broke through $60 per barrel on Wednesday for the first time since May of 2015, U.S. crude ultimately fell 33 cents to $59.64 per barrel and Brent dropped 54 cents to $66.48 - the declines attributed to "a little bit of profit taking" although the market continues to gravitate towards bullish news, according to Gene McGillian, manager of market research at Tradition Energy.
Specifically, Wednesday's performance was influenced by Libya having to shut down a pipeline feeding Es Sider port for repairs and the North Sea Forties pipeline operating at only half its normal capacity.
Analysts at Tudor Pickering Holt Energy Research said in a note, "While supply impact is immaterial, it shows that with the market structurally undersupplied and inventories continuing to draw, geopolitical risk has now re-emerged as an important factor in day-to-day trading dynamics."
But if Wednesday demonstrated just how vulnerable the market is in its "undersupplied" state, two respected analysts warn that next month will be a harbinger for a year of tumult as the tide turns and supply rockets back into prominence.
John Kilduff, founding partner at Again Capital, told CNBC that "the year for oil will turn very much on what we see in January...because there is a lot of supply ready to come back on the market.
"Demand is a bit of a question mark going forward, and U.S. production is going to be the big story as well for 2018: we could easily get to 10 million barrels per day much earlier than has been predicted."
However, he said that while he is bearish, "we're not going to go back to the dark days when oil prices went back to $26 per barrel.
Michael D. Cohen, head of energy commodities research at Barclays, is even more bearish than Kilduff: in a CNBC commnentary he writes that excess global inventories have been reduced by half, and "As a result, investors are positioned for a bull rally, leaving the oil market susceptible to a sharp correction should the fundamentals disappoint.
"That is one of several reasons why we are retaining our bearish stance for next year, and we expect Brent prices to average $55 per barrel."
Cohen goes on to note that China's grow will slow in 2018, "which would exert disproportionate pressure on commodities demand"; plus, supply in Brazil and Canada along with other countries "is ramping up quickly," indicating a return to surplus in the New Year.
The gloomy outlooks follow equally worrying news last week when Alexander Novak, energy minister for Russia, made comments about the Organization of the Petroleum Exporting Countries and the former Soviet Union exiting the cartel's production cuts - although he was quick to point out that the exit would be very smooth and in a manner that would not create any new market surplus.
